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Funding While Waiver Application Pending

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A client with a traditional DB plan is interested in filing a for a funding waiver. I have tried to explain some of the pitfalls, but they are still interested in pursuing the waiver. One of the biggest disadvantages (based on my own experience) is the IRS makes no promise on when they will respond to the application. This raises the question of how the plan should be funded while the waiver application is pending. Should we assume it will be approved and run the risk of missed contributions, later quarterlies and excise tax if the waiver is rejected? Or should they continue funding assuming the waiver won't be approved (in which case what is the point)?


I am interested to hear both about any guidance as well as what people have seen/done in the past.

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I don't know the answer, but I would imagine that if you can afford the quarterlies, you aren't going to get the waiver.  The one and only one I had was rejected by IRS, client was not funding, and ended up with a deficiency.  Client filed for a distress termination with PBGC, which they granted and took over the plan.

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Agreed - if you can fund while waiting then is the waiver really needed? The key is to able to demonstrate that the hardship necessitating the waiver is temporary and the prospects for recovery and making future contributions, including the amortized waiver payments, are favorable. if a waiver just postpones the inevitable distress termination (as noted by kc) and increases PBGC liability, then it won't be approved. The resulting funding deficiency (if contributions not made and waiver rejected) will save the contribution cost but not the excise tax, which can jump to 100% in year two. Finally, the user fee and the administrative costs for a funding waiver application are not insignificant, so all told, I would recommend applying for a waiver only if there was a high chance for success based on all the facts and circumstances. it is not the type of situation to test the waters to see what happens, in my opinion.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services


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